The video gaming industry is one of the more important economic segments in Canada.
Based on a 2019 study by the Entertainment Software Association of Canada, a non-profit trade association representing the entertainment software industry, this sector contributes $4.5 billion to the country’s Gross Domestic Product every year, up by 20% from its performance in 2017.
Out of the $4.5 billion, $2.6 billion is generated directly by the industry. The other $1.9 billion is either induced or earned indirectly.
Number of Game Developers in Canada
Around 700 game development studios are active in the country as of 2019, 16% more than their number in 2017. Much of the growth took place in Ontario and other regions such as the Prairies and Atlantic Canada, where 129 new companies emerged.
Still, Quebec, Ontario, and British Columbia account for most of the activity in the country’s video gaming sector, hosting 82% of all the game studios in the country.
Government Support for Canada’s Gaming Industry
In terms of global presence, Canada is one of the biggest sources of game development in the world, behind only Japan and the US. This is mainly due to the large pool of talent drawn to the country’s assortment of provincial and federal grants:
- Scientific Research and Experimental Development or SR&ED program
- Canada Media Fund: Experimental Stream
- Industrial Research Assistance Program or IRAP Funding
- CanExport Grant
- British Columbia Interactive Digital Media Tax Credit or BCIDMTC
- British Columbia Investment Capital Program Tax Credit (New Media Venture Capital)
- Ontario Interactive Digital Media Tax Credit or OIDMTC
- Quebec Production of Multimedia Titles Tax Credit
These are just some of Canada’s funding opportunities, supporting game developers from conceptualization to production to advertising in export markets.
Employment Opportunities in the Gaming Industry
Several government grants helped game developers push the total number of full-time employees or FTEs in the industry to 48,000 as of 2019. Over 27,000 of these FTEs are employed directly, 28% more than was employed in 2017.
In Ontario alone, five thousand full-time jobs were added since 2017, an increase of 32% from the previous count. Within the same period, around 3,100 FTEs were added in Ontario.
While Canada is home to some of the most prominent game developers in the world, over half of all the gaming companies across the country are micro-enterprises with fewer than five employees. Almost a third are small businesses with up to 25 employees.
The overall average salary is more or less the same from small businesses to very large companies, which is at a little over $70,000.
Impact on Canada’s Economy
Canada’s video gaming industry generated a total of $3.6 billion in revenue in 2019, 15% more than what it earned in 2017.
It was and still is largely export-driven, with three-quarters of its earnings coming from overseas markets. This is true for all company sizes, from micro-enterprises of less than five employees to very large corporations with more than 100 employees.
Among its sources of income, transfer pricing is the most significant contributor, accounting for roughly 41% of its total revenue. This includes a wide range of transactions, from sales support to contract R&D services to manufacturing and distribution.
In-game sales are the second-highest source of revenue at 13%, while game unit sales and industry tax credits are not far behind at 11% each. This points to the fact that Canadian companies focus more on the product development cycle, releasing only a few titles in the past year.
In terms of expenditures, the video gaming industry spent around $3.2 billion in 2019, which was 24% higher than the reported expenditure two years prior. Over 60% went to salaries and wages, while 34% was spent on non-labor expenses.
Quebec accounts for almost half of the total industry expenditure at 47%. British Columbia is second at 26%, and Ontario is third at 18%.
SR&ED Grants Canada and the Video Gaming Industry
Several game developers have been operating in the country since the 1980s, producing iconic games like Boulder Dash, Evolution, and BC’s Quest for Tires. As the decades passed, many of them moved to or opened in the East Coast, where government support for the industry is more robust.
One example is Ubisoft, a French game developer with several studios throughout the world. In 1997, Ubisoft set up shop in Montreal with the support of government tax incentives. It was not long after that other game developers like Electronic Arts and Warner Bros. Interactive Arts followed suit.
Leveraging the SR&ED Program for Game Developers
The SR&ED program is a federal tax incentive program that can level the playing field for smaller companies across Canada.
It offers SR&ED tax incentives in the form of income tax deduction or investment tax credit (ITC) to qualified projects resolving scientific and technological uncertainties using systematic investigation.
SR&ED is open to all Canadian controlled private corporations or CCPCs. Conditions for eligibility focus more on the project instead of the applying entity. This means that any business can submit an SR&ED claim regardless of what industry it is in, as long as the project is eligible.
Access to SR&ED refunds can help small businesses pursue research and experimental development activities necessary to monetize innovative ideas as new or better products and services.
Gaming Innovation with SR&ED Tax Credits
Canada’s video gaming industry is currently at the forefront of groundbreaking trends with emerging technologies like virtual reality, augmented reality, cloud gaming, and even blockchains.
With these technological advancements, game developers are in the best position to create products that can entertain Canadians and make it easier for them to stay indoors during the pandemic. It will also help generate more employment opportunities at a time when they are needed most.
The SR&ED program covers costs for salaries and wages, making it extremely helpful to the gaming sector where much is spent on labor costs. The SR&ED refunds is also applicable to material costs, some overhead costs, and contractor services resulting from qualified SR&ED projects.
With access to skilled experts and advanced tools, studios can create more prototypes for either mobile or online platforms. They can also integrate better features like motion capture, improved processing power, and advanced algorithm designs.
What Canada’s Game Developers Can Get from the SR&ED Program
Game studios with eligible SR&ED projects can earn up to 35% ITC for the first $3 million in qualifying expenditures and another 15% of non-refundable ITC for exceeding costs.
The Canada Revenue Agency, the implementing body of the SR&ED program, also awards qualifying corporations with 15% ITC for eligible costs over $3 million, 40% of which can be refunded.
Other corporations can earn 15% non-refundable ITC for all qualified costs.
Whether it is through a deduction from the tax payable, an SR&ED tax credit, or a refund, access to SR&ED can help stretch even the most limited research and development R&D budget, allowing small game developers to stay relevant in a very competitive industry.
If you haven’t taken advantage of this generous grant for your business, your best option is to talk to funding specialists from EVAMAX.
We can help you throughout the application process, from the preparation of all required documents to the government follow-ups for approval.
For a free consultation on the SR&ED program and other innovation grants, give us a call or set an appointment through our website.